G.R. No. L-7817. October 31,
1956.
ALFREDO
M. VELAYO, in his capacity as Assignee of the insolvent COMMERCIAL AIR LINES,
INC. (CALI), Plaintiff-Appellant, vs. SHELL COMPANY OF THE
PHILIPPINE ISLANDS, LTD.,Defendant-Appellee, YEK HUA TRADING
CORPORATION, PAUL SYCIP and MABASA & CO., intervenors.
FELIX, J.:
FACTS:
The
Commercial Air Lines, Inc., which will be hereinafter referred to as CALI, is a
corporation duly organized and existing in accordance with the Philippines laws
and is previously engaged in air transportation business. The Shell Company of
the P. I., Ltd., which will be designated as the Defendant, is on
the other hand, a corporation organized under the laws of England and duly
licensed to do business in the Philippines.
Since
the start of CALI’s operations, its fuel needs were all supplied by the Defendant.
Mr. Desmond Fitzgerald, its Credit Manager who extended credit to CALI, was in
charge of the collection thereof. However, all matters referring to extensions
of the term of payment had to be decided first by Mr. Stephen Crawford and
later by Mr. Wildred Wooding, who represented in this country Defendant’s
Board of Directors, the residence of which is in London, England.
As of
August, 1948, the books of the Defendant showed a balance of
P170,162.58 in its favor for goods it sold and delivered to CALI. Even before
August 6, 1948, Defendant had reasons to believe that the
financial condition of the CALI was for from being satisfactory.
On
August 6, 1948, the management of CALI informally convened its principal
creditors (excepting only the insignificant small claims) and informed them that
CALI was in a state of insolvency and had to stop operation. The persons
present, including Mr. Desmond Fitzgerald, signed their names and the names of
the companies they represented on a memorandum pad of the law firm Quisumbing,
Sycip, and Quisumbing.
What
occurred in that meeting may be summarized as follows:
xxx.
Then
followed a discussion on the payment of claims of creditors and the preferences
claimed for the accounts due to the employees, the Government and the National
Airports Corporation. The representatives of the latter Messrs. Vicente H.
Liwag, C. Dominguez and Pacifico V. Agcaoili, contended that their accounts
were preferred. The other creditors disputed such contention of preference. No
understanding was reached on this point and it was then generally agreed that
the matter of preference be further studied by a working committee to be
formed. The creditors present agreed to the formation of a working committee to
continue the discussion of the payment of claims and preferences alleged by
certain creditors, and it was further agreed that said working committee would
supervise the preservation of the properties of the corporation while the
creditors attempted to come to an understanding as to a fair distribution of
the assets among them. From the latter exhibit the following is copied:
“4. Certain
specific matters such as the amount owing to the Philippine Air Lines, Inc.,
and the claims of Smith, Bell vs. Co., (representing Lloyds of London) that its
claim should be offset against the payments which may be due to CALI from
insurance claims were not taken up in detail. It was agreed that these matters
together with the general question of what are preferred claims should be the
subject of further discussions, but shall not interfere with the consummation
of the sale in favor of PAL.
“5. The
creditors present agreed to the formation of the working committee to supervise
the preservation of the properties of the corporation and agreed further that
Mr. Fitzgerald shall represent the creditors as a whole in this committee. It
was understood, however, that all questions relating to preference of claims
can be decided only by the creditors assembled.
“6. It
was the sense of the persons present that, if possible, the insolvency court be
avoided but that should the creditors not meet in agreement, then all the
profits from the sale will be submitted to an insolvency court for proper
division among the creditors.”
To this
working committee, Mr. Desmond Fitzgerald, Credit Manager, of the Defendant,
Atty. Agcaoili of the National Airports Corporation and Atty. Alexander Sycip
were appointed. After the creditors present knew the balance sheet and heard
the explanations of the officers of the CALI, it was their unanimous opinion
that it would be advantageous not to present suits against this corporation but
to strive for a fair pro-rata division of its assets, although the management
of the CALI announced that in case of non-agreement of the creditors on a
pro-rata division of the assets, it would file insolvency proceedings. Mr.
Fitzgerald did not decline the nomination to form part of said working
committee and on August 9, 1948, the 3 members thereof discussed methods of
achieving the objectives of the committee as decided at the creditors’ meeting,
which were to preserve the assets of the CALI and to study the way of making a
fair division of all the assets among the creditors. Atty. Sycip made an offer
to Mr. D. Fitzgerald to name a representative to oversee the preservation of
the assets of the CALI, but Mr. Fitzgerald replied that the creditors could rely
on Col. Lambert. Atty. Pacifico Agcaoili promised to refer the arguments
adduced at the second meeting to the General Manager of the National Airports
Corporations and to obtain the advice of the Corporate Counsel, so the
negotiation with respect to the division of assets of the CALI among the
creditors was left pending or under advice when on that very day of the meeting
of the working committee, August 9, 1948, which Mr. Fitzgerald attended, Defendant
effected a telegraphic transfer of its credit against the CALI to the
American corporation Shell Oil Company, Inc., assigning its credit, amounting
to $79,440.00, which was subsequently followed by a deed of assignment of
credit dated August 10, 1948, the credit amounting this time to the sum of
$85,081.29.
ISSUE:
(1) Whether
or not under the facts of the case, the Defendant Shell
Company of the P. I., Ltd., taking advantage of its knowledge of the existence
of CALI’s airplane C-54 at the Ontario International Airport within the Country
of San Bernardino, State of California, U. S. A.,
(Which
knowledge it acquired: first at the informal luncheon-meeting of the
principal creditors of CALI on August 5, 1948, where its Credit Manager, Mr.
Desmond Fitzgerald, was selected to form part of the Working Committee to
supervise the preservation of CALI’s properties and to study the way of making
a fair division of all the assets among the creditors and thus avoid the
institution of insolvency proceedings in court; and
Subsequently,
at the meeting of August 9, 1948, when said Mr. Fitzgerald met the other
members of the said Working Committee and heard and discussed the contention of
certain creditors of CALI — on the accounts due the employees, the Government
and the National Airports Corporation — who alleged that their claims were
preferred),
acted
in bad faith and betrayed the confidence and trust of the other creditors of
CALI present in said meeting by affecting a hasty telegraphic transfer of its
credit to the American corporation Shell Oil Company, Inc., for the sum of
$79,440 which was subsequently followed by a deed of assignment of credit dated
August 10, 1948, amounting this time to the sum of $85,081.28 (Exhs. Z), thus
defeating the purpose of the informal meetings of CALI’s principal creditors
end depriving the Plaintiff, as its Assignee, of the means of
obtaining said C-54 plane, or the value thereof, to the detriment and prejudice
of the other CALI’s creditors who were consequently deprived of their share in
the distribution of said value; and
(2) Whether
or not by reason of said betrayal of confidence and trust, Defendant may
be made under the law to answer for the damages prayed by the Plaintiff;
and if so, what should be the amount of such damages.
We see
that Plaintiff, as Assignee of the Insolvent CALI, had personality
and authority to institute this case for damages,
Whether
the payment of damages sought to be recovered from Defendant may
be ordered under the Law and the evidence of record.
RULING:
IF ANY
PERSON, before the assignment is made, having notice of the commencement of the
proceedings in insolvency, or having reason to believe that insolvency
proceedings are about to be commenced, embezzles or disposes of any money,
goods, chattels, or effects of the insolvent, he is chargeable therewith, and
liable to an action by the assignee for double the value of the property sought
to be embezzled or disposed of, to be received for the benefit of the insolvent
estate.
The
writer of this decision does not entertain any doubt that the Defendant —
taking advantage of his knowledge that insolvency proceedings were to be
instituted by CALI if the creditors did not come to an understanding as to the
manner of distribution of the insolvent asset among them, and believing it most
probable that they would not arrive at such understanding as it was really the
case — schemed and effected the transfer of its sister corporation in the
United States, where CALI’s plane C-54 was by that swift and unsuspected
operation efficaciously disposed of said insolvent’s property depriving the
latter and the Assignee that was latter appointed, of the opportunity to
recover said plane. In addition to the aforementioned Section 37, Chapter 2 of the PRELIMINARY TITLE of the
Civil Code, dealing on Human Relations, provides the following: “Art
19. Any person must, in the exercise of his rights and in the
performances of his duties, act with justice, give everyone his due and observe
honesty and good faith”.
It
maybe said that this article only contains a mere declarations of principles
and while such statement may be is essentially correct, yet We find that such
declaration is implemented by Article 21 and sequence of the same Chapter which
prescribe the following: “Art. 21. Any
person who wilfully causes loss or injury to; another in a manner that is
contrary to morals, good customs or public policy shall compensate the latter
for the damage”.
The
Code Commission commenting on this article, says the following: “Thus at one
stroke, the legislator, if the forgoing rule is approved (as it was approved),
would vouchsafe adequate legal remedy for that untold numbers of moral wrongs
which is impossible for human foresight to provide for specifically in the
statutes.
“But, it may be asked, would this
proposed article obliterate the boundary line between morality and law? The
answer is that, in the last analysis, every good law draws its breath of life
from morals, from those principles which are written with words of fire in the
conscience of man. If this premises is admitted, then the proposed rule is a
prudent earnest of justice in the face of the impossibility of enumerating, one
by one, all wrongs which cause damages. When it is reflected that while codes
of law and statutes have changed from age to age, the conscience of man has
remained fixed to its ancient moorings, one cannot but feel that it is safe and
salutary to transmute, as far as may be, moral norms into legal rules, thus
imparting to every legal system that enduring quality which ought to be one of
its superlative attributes.
“Furthermore,
there is no belief of more baneful consequence upon the social order than that
a person may with impunity cause damage to his fellow-men so long as he does
not break any law of the State, though he may be defying the most sacred
postulates of morality. What is more, the victim loses faith in the ability of
the government to afford him protection or relief.
“A
provision similar to the one under consideration is embodied in article 826 of
the German Civil Code.
“The
same observations may be made concerning injurious acts that are contrary to
public policy but are not forbidden by statute. There are countless acts of
such character, but have not been foreseen by the lawmakers. Among these are
many business practices that are unfair or oppressive, and certain acts of
landholders and employers affecting their tenants and employees which
contravene the public policy of social justice.
“Another
rule is expressed in Article 24 which
compels the return of a thing acquired ‘without just or legal grounds’. This
provision embodies the doctrine that no person should unjustly enrich himself
at the expense of another, which has been one of the mainstays of every legal
system for centuries. It is most needful that this ancient principles be
clearly and specifically consecrated in the proposed Civil Code to the end that
in cases not foreseen by the lawmaker, no one may unjustly benefit himself to
the prejudice of another. The German Civil Code has a similar provision (art.
812).” (Report of the Code Commission on the Proposed Civil Code of the
Philippines, p. 40- 41).
From
the Civil Code Annotated by Ambrosio Padilla, Vol. I, p. 51, 1956 edition, We
also copy the following: “A moral wrong
or injury, even if it does not constitute a violation of a statute law, should
be compensated by damages. Moral damages (Art. 2217) may be recovered (Art.
2219). In Article 20, the liability for damages arises from a willful or
negligent act contrary to law. In this article, the act is contrary to
morals, good customs or public policy.”
Now, if
Article 23 of the Civil Code goes as far as to provide that: “Even if an act or
event causing damage to another’s property was not due to the fault or
negligence of the Defendant, the latter shall be liable for
indemnity if through the act or event he was benefited.”, with mere much more
reason the Defendant should
be liable for indemnity for acts it committed in bad faith and with betrayal of
confidence.
It may
be argued that the aforequoted provisions of the Civil Code only came into
effect on August 30, 1950, and that they cannot be applicable to acts that took
place in 1948, prior to its effectivity. But
Article 2252 of the Civil Code, though providing that: “Changes made and new
provisions and rules laid down by this Code which may be prejudice or impair
vested or acquired rights in accordance with the old legislation, shall have no
retroactive effect.” implies that when the new provisions of the Code does nor prejudice or impair vested
or acquired rights in accordance with the old legislation — and it cannot be
alleged that in the case at bar Defendant had any vested or
acquired right to betray the confidence of the insolvent CALI or of its
creditors — said new provisions, like those on Human Relations, can be given
retroactive effect. Moreover, Article 2253 of the Civil Code further
provides: “ But if a right should be declared for the first time in this
Code, it shall be effective at once, even though the act or event which may
give rise thereto may have been done or may have occurred under the prior
legislation, provided said new right does not prejudice or impair any vested or
acquired right, of the same origin.” and according to Article 2254, “no vested
or acquired right can arise from acts or omissions which are against the law or
which infringe upon the right of others.”
In case
of Juan Castro vs. Acro Taxicab Company, (82 Phil., 359; 47 Off. Gaz.,
[5] 2023), one of the question at issue was whether or not the provisions of
the New Civil Code of the Philippines on moral damages should be applied to an
act of negligence which occurred before the effectivity of said code, and this
Court, through Mr. Justice Briones, sustaining the affirmative proposition and
citing decisions of the Supreme Court of Spain of February 14, 1941, and
November 14, 1934, as well as the comment of Mr. Castan, Chief Justice of the
Supreme Court of Spain, about the revolutionary tendency of Spanish
jurisprudence, said the following: “We conclude, therefore, reaffirming the
doctrine laid down in the case of Lilius (59 J. F. 800) in the sense that
indemnity lies for moral and patrimonial damages which include physical and
pain sufferings. With this (doctrine), We effect in this
jurisdiction a real symbiosis 1 of the Spanish and American Laws and, at the
same time, We act in consonance with the spirit and progressive march of time”
(translation)
The
writer of this decision does not see any reason for not applying the provisions
of Section 37 of the Insolvency Law to the case at bar, specially if We take
into consideration that the term “any person” used therein cannot be limited to
the officers or employee of the insolvent, as no such limitation exist in the
wording of the section (See also Sec. 38 of the same Act), and that, as stated
before, the Defendant schemed and affected the transfer of its
credits (from which it could derive practically nothing) to its sister corporation
in the United States where CALI’s plane C-54 was then situated, succeeding by
such swift and unsuspected operation in disposing of said insolvent’s property
by removing it from the possession and ownership of the insolvent. However,
some members of this Court entertain doubt as to the applicability of said
section 37 because in their opinion what Defendant in reality
disposed of was its own credit and not the insolvent’s property, although this
was practically the effect and result of the scheme. Having in mind this
objection and that the provisions of Article 37 making the person coming within
its purview liable for double the value of the property sought to be disposed
of constitute a sort of penal clause which shall be strictly construed,
and considering further that the same result may be obtained, by applying only
the provisions of the Civil Code, the writer of this decision yields to the
objection aforementioned.
Articles
2229, 2232, 2234, 2142, and 2143 of the Civil Code read as follows: “Art. 2229. Exemplary
or corrective damages are imposed, by way of example or correction for the
public good, in addition to the moral, temperate, liquidated or compensatory
damages.”
“Art.
2232. In contracts quasi-contracts, the Court may award exemplary damages
if the Defendant acted in a wanton, fraudulent, reckless,
oppressive, or malevolent manner.”
“Art.
2234. While the amount of the exemplary damages need not be proved,
the Plaintiff must show that he is entitled to moral, temperate, or
compensatory damages before the court may consider the question of whether or
not exemplary damages should be awarded. In case liquidated damages should be
upon, although no proof of loss is necessary in order that such liquidated
damages be recovered, nevertheless, before the court may consider the question
of granting exemplary in addition to the liquidated damages, the Plaintiff must
show that he would be entitled to moral, temperate or compensatory damages were
it not for the stipulation for liquidated damages.”
“Art.
2142. Certain lawful, voluntary and unilateral acts give rise to the
juridical relation of quasi-contract to the end that no one shall be unjustly
enriched or benefited at the expense of another.”
“Art,
2143. The provisions for quasi-contracts in this Chapter do not
exclude other quasi-contracts which may come within the purview of the
preceding article.”
In
accordance with these quoted provisions of the Civil Code, We hold Defendant liable
to pay to the Plaintiff, for the benefit of the insolvent CALI and
its creditors, as compensatory damages a sum equivalent to the value of the
plane at the time aforementioned and another equal sum as exemplary damages.
There
is no clear proof in the record about the real value of CALI’s plane C-54 at
the time when Defendant’s credit was assigned to its sister
corporation in the United States.
RESOLUTION
July 30, 1957
FELIX, J.:
ISSUE:
Whether
Plaintiff’s right of action was based and prosecuted in the lower court
under the provisions of the Insolvency Law and consequently that he is stopped
from pursuing another theory and is not entitled to damages under the
provisions of the New Civil Code.
RULING:
As to
the fifth question raised by counsel for Appellee in the
course of his oral argument at the hearing in the City of Baguio of his motion,
i.e., “that Plaintiff’s right of action was based and prosecuted in
the lower court under the provisions of the Insolvency Law and he is,
therefore, stopped from pursuing on appeal another theory under which he might
be entitled to damages in consonance with the provisions of the new Civil
Code”, We may invoke the decision in the case of Dimaliwat vs. Asuncion, 59
Phil., 396, 401. In that decision We said the following:
“Vicente
Dimaliwat contends that Esperanza Dimaliwat has no right to claim the ownership
of the property in question to the exclusion of the children of the third
marriage, under the foregoing provisions of the Civil Code, because the case
was not tried on that theory in the lower court. We find no merit in that
contention. The decision cited are not in point. Articles 968 and 969 of the
Civil Code are rules of substantive law, and if they are applicable to the
facts of this case they must be given effect.”
The same thing can be said in the case at bar.
Articles 19, 21, 2229, 2232, 2234, 2142 and 2143 of the new Civil Code are
rules of substantive law, and if they are applicable to the facts of this case,
which We hold they do, they must be made operative and given effect in this
litigation.
x x
x x
x
x x
x x
It
maybe seen from the foregoing that the above mentioned grounds on which the
motion for reconsideration of the Defendant Shell stand, are
not well taken. However, and despite this finding, We insist to delve in the
question of whether the exemplary damages imposed in this Court upon Defendant Appellee,
which the latter’s counsel contends to be inequitable and unfair, may be
modified.
It will
be remembered that this case was looked into from the point of view of the
provisions of Section 37 of the Insolvency Law.
The
writer of the decision was then and still is of the opinion that the provisions
of this section were applicable to the case, and accordingly, that Defendant Shell
was liable in this action instituted by the Assignee for double the value of
the property disposed of, to be received for the benefit of the Insolvent
estate. However, some of the members of this Court, for the reasons already
stated in the decision, entertained some doubt as to the applicability of said
Section 37, and yielding to their objections the writer of the decision turned
his eyes to the provisions of the new Civil Code, inasmuch as the same result
could be achieved. In the case at bar, it cannot be denied that:
“Defendant —
taking advantage of his knowledge that insolvency proceedings were to be
instituted by CALI if the creditors did not come to an understanding as to the
manner of distribution of the insolvent assets among them, and believing as
most probable that they would not arrive at such understanding, as it was
really the case- schemed and effected the transfer of its credit to its sister
corporation in the United States where CALI’s plane C-54 was and by this swift
and unsuspected operation efficaciously disposed of said insolvent’s property
depriving the latter and the Assignee that was later appointed, of the
opportunity to recover said plane.”
These
acts of Defendant Shell come squarely within the sanction
prescribed by Congress by similar acts and no reflection can be reasonably cast
on Us if in the measure of the exemplary damages that were to be imposed
upon Defendant-Appellee, We were influenced by the
provisions of Section 37 of the Insolvency Law. In this connection it is to be
noted that, according to the Civil Code, exemplary or corrective damages are
imposed by way of example or correction for the public good, in addition of the
moral, temperate, liquidated or compensatory damages Art. 2229, and that the
amount of the exemplary damages need not be proved (Art. 2234), for it is left
to the sound discretion of the Court.
Notwithstanding the foregoing, a majority of this
Court was of the belief that the value of CALI’s plane C-54, at the time
when Defendant’s credit was assigned to its sister corporation in
the United States, might result quite high, and that exemplary damages should
not be left to speculation but properly determined by a certain and fixed
amount. So they voted for the reconsideration of the decision with regard to
the amount of exemplary damages which this Court fixed at P25,000.00.
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